While it may be a seller’s market right now, it’s because so many people want to buy homes. The economic fallout of the coronavirus pandemic led to the 30-year mortgage interest rate consistently hitting new record lows over the past year. But what if you’re a first-time homebuyer and you think you don’t have enough for a down payment? An FHA Loan may be able to help.
FHA Loans have made it easier for millions of people to achieve their dream of homeownership. Learn more about FHA loans, their benefits, and how you can qualify.
FHA loans, or FHA mortgages, are designed for first-time home buyers, step up borrowers, and borrowers with limited funds for their down payment. Insured by the Federal Housing Administration, an FHA mortgage is a government-backed loan with more flexible lending requirements than those of conventional mortgages or loans. Fixed and adjustable rate options are available.
Compared to a conventional loan, FHA loans are easier to get for many people. Your minimum FICO credit score must be a minimum of 580 if you want to qualify for the low down-payment advantage of 3.5%. With a conventional loan, on the other hand, the down payment is generally recommended to be as high as 20%.
Another difference is how mortgage insurance works. With a conventional loan, a homeowner will need to purchase private mortgage insurance (PMI) if they make a down payment lower than 20%. After they meet a 78% loan-to-value ratio, they no longer need to pay PMI. With an FHA loan, the homeowner will be required to purchase mortgage insurance premiums (MIP), which stays in effect until the mortgage is fully paid off
Here are some of the requirements if you want to get an FHA Loan:
An FHA loan can help low- and moderate-income individuals and families afford to purchase a home. An FHA mortgage can also be a good option if you have less-than-stellar credit or limited cash for a down payment. And even if you’ve filed for bankruptcy or foreclosure in the past, you still may be able to qualify for an FHA-backed mortgage.
You may qualify for an FHA mortgage with a down payment as low as 3.5% and without a long credit history or outstanding credit. Gift money may be allowed for use as your down payment.
At Academy Bank, we are an FHA approved lender. When you apply for your FHA Loan with us, you’ll get these extra benefits:
If your FICO credit score is at least 500, you’re likely to be eligible for an FHA Loan. While it must be above 580 in order to qualify for the low 3.5% down payment, any score between 500 and 579 means you qualify for a 10% down payment. Keep in mind that your individual mortgage lender may have different standards from the minimum FICO score requirements set by the FHA.
Besides the FICO score, there are a few other qualifications you must meet as well. You must have a debt-to-income ratio lower than 43%, and lenders may have their own requirements. You can calculate your debt-to-income ratio by taking your monthly debt payments and dividing it by your gross monthly income.
For example, let’s say your monthly debts were $875 and your monthly income was $2,500. Dividing $875 by $2,500, your debt-to-income ratio would be 35%, meaning you would be below the 43% threshold. When calculating your ratio, be sure you’re using your gross income (before taxes) and any debts such as credit card debt, car payments, student loans, and more.
Additionally, to get approved for an FHA loan, you’ll likely need to have a steady income and proof of employment. There’s no specific amount you need to make, because the debt-to-income ratio is more important. But your lender will want to see that you’re making money. This gives them the confidence to know that you’ll be able to make your mortgage payments, and pay them on time.
For many people, becoming a homeowner is a personal goal. It can represent independence, stability, and security -- for you and your family.
Are you having a hard time knowing where to start? At Academy Bank, we’re happy to help you learn how to get started with the home buying process. Reach out to us today.
Subject to credit approval.